He has to notify AT&T that he's not going to be using an iPhone anymore and AT&T must confirm that with the IMEI number of another phone (not that of an iPhone)
iPhone stays activated until you update the software or until you restore the software. When you have to do one of those 2 things, you then need a SIM card. But if you're not planning on restoring or updating it then you don't have to worry about it deactivating.
Also, iPhone deactivates if it is put into recovery mode and has to be "recovered"